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Saturday, September 7, 2013

Paper Money's Inflation: Silent Robber and Source of Mass Poverty

Paper is worthless. So is paper money. Even though the government assign their value, but there is inflation every year. Their value always decrease. Heading for their real value: Worthless!

Long time ago many government in the world such as the Roman Empire, the Greece, Babylon, and also Islamic Caliphates using real money such as Gold and Silver as their money.

Those money have real value even when people don't use them as money. Gold and Silver always valuable everywhere and everytime.

Gold and Silver's value move along with other goods. Their value are relatively the same. There is no real inflation though their value with other goods are fluctuate too.

Gold and silver have have a real value compared to paper, more stable and more resistant to inflation. For example, 1 dinar (4.25 grams of 22 carat gold - around US$ 200) at the time of the Prophet Muchammad (620 AD) can be used to buy 1 or 2 goats. There is a hadith which is a testament to the stability of the dinar in the history from Hadith Bukhari as follows:

"Syahib bin Gharqadah told us, he said," I hear people talk about 'Urwah, that the Holy Prophet. give money 1 Dinar to buy a goat for him, and with the money he bought 2 goats, then he sold 1 goat at a price of one Dinar. He came home with one Dinar and a sheep. Prophet. pray for the blessing in the trading. Even if 'Urwah buy dust, he must have been lucky. "(HRBukhari)

Now, even with the exchange rate of 1 dinar = US$ 200, we can get 1 or 2 large goat small goats. Stable isn't it? It's been more than 1300 years. With paper money, you cannot expect that thing!

Similarly, the stability of silver dirhams (2.975 grams of silver) can be proved in surat Al-Kahf verse 19:

"... Then dispatch one of you to go to town with several Dirhams (silver money), and let him see a good food, then let him bring the food to you (buy the food) ..." [Quran Al-Kahf 19]

Well assuming the youth bring 3 pieces of silver / coin is now worth US$ 20 and the number of young people is 5 people, then the price of food is around US$ 7 per portion only. Not much different from the present food for a period of thousands of years.